Editing IPCC:AR6/WGIII/Chapter-15 (section)

=== FAQ 15.2 | What’s the current status of global climate finance and the alignment of global financial flows with the Paris Agreement? ===

<div id="h2-24-siblings" class="h2-siblings"></div>

There is no agreed definition of climate finance. The term ‘climate finance’ is applied to the financial resources devoted to addressing climate change by all public and private actors from global to local scales, including international financial flows to developing countries to assist them in addressing climate change. Total climate finance includes all financial flows whose expected effect aims to reduce net greenhouse gas (GHG) emissions and/or to enhance resilience to the impacts of current and projected climate change. This includes private and public funds, domestic and international flows and expenditures. Tracking of climate finance flows faces limitations, in particular for national climate finance flows.

Progress on the alignment of financial flows with low GHG emissions pathways remains slow. Annual global climate finance flows are on an upward trend since the Fifth Assessment Report, according to the Climate Policy Initiative reaching more than USD630 billion in 2019/2020, however, growth has likely slowed down and flows remain significantly below needs. This is driven by barriers within and outside the financial sector. More than 90% of financing is allocated to mitigation activities despite the strong economic rationale of adaptation action. Adjusting for higher estimates on current flows for energy efficiency based on International Energy Agency data, the dominance of mitigation becomes even stronger. Persistently high levels of both public and private fossil-fuel related financing as well as other misaligned flows continue to be of major concern despite recent commitments. Significant progress has been made in the commercial finance sector with regard to the awareness of climate risks resulting from inadequate financial flows and climate action. However, a more consequent investment and policy decision-making that enables a rapid redirection of financial flows is needed. Regulatory support as a catalyser is an essential driver of such redirections. Dynamics across sectors and regions vary, with some being better positioned to close financing gaps and to benefit from an enabling role of finance in the short-term.

<div id="FAQ 15.3 |    What defines a financing gap, and where are the critically identified gaps?" class="h2-container"></div>

<span id="faq-15.3-what-defines-a-financing-gap-and-where-are-the-critically-identified-gaps"></span>